10-K: Evans Bancorp Announces 2024 Annual Results Amidst Pending Merger with NBT Bancorp

Evans Bancorp reports a decrease in net income for 2024 due to the absence of a gain from the sale of its insurance agency, while navigating a merger with NBT Bancorp expected to close in the second quarter of 2025.

Summary

• Evans Bancorp's net income for 2024 was $12.0 million, a decrease from $24.5 million in 2023.
• The decrease in net income was primarily due to the gain on the sale of The Evans Agency (TEA) in 2023.
• Net interest income decreased slightly to $59.0 million in 2024 from $61.2 million in 2023.
• The net interest margin decreased to 2.81% in 2024 from 3.02% in 2023.
• Non-interest income decreased to $11.0 million in 2024 from $32.9 million in 2023, mainly due to the TEA sale.
• Non-interest expense decreased to $53.4 million in 2024 from $59.4 million in 2023, primarily due to lower salaries and employee benefits.
• The company's shareholders approved the merger with NBT Bancorp, expected to close in the second quarter of 2025.
• Total assets increased to $2.2 billion at December 31, 2024, from $2.1 billion at December 31, 2023.
• Net loans increased to $1.8 billion at December 31, 2024, from $1.7 billion at December 31, 2023.
• Deposits increased to $1.9 billion at December 31, 2024, from $1.7 billion at December 31, 2023.
• Stockholders' equity increased to $183 million at December 31, 2024, from $178 million at December 31, 2023.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the financial results show a decline in net income and margin, the company is progressing with a merger that is expected to provide long-term benefits. The company also maintains strong capital ratios and is taking steps to manage interest rate risk.

Positives

• Total assets increased to $2.2 billion at December 31, 2024, from $2.1 billion at December 31, 2023.
• Net loans increased to $1.8 billion at December 31, 2024, from $1.7 billion at December 31, 2023.
• Deposits increased to $1.9 billion at December 31, 2024, from $1.7 billion at December 31, 2023.
• Stockholders' equity increased to $183 million at December 31, 2024, from $178 million at December 31, 2023.
• Non-interest expense decreased to $53.4 million in 2024 from $59.4 million in 2023, primarily due to lower salaries and employee benefits.

Negatives

• Net income decreased to $12.0 million in 2024 from $24.5 million in 2023, primarily due to the absence of the gain from the sale of TEA.
• Net interest margin decreased to 2.81% in 2024 from 3.02% in 2023.
• Non-interest income decreased to $11.0 million in 2024 from $32.9 million in 2023, mainly due to the TEA sale.

Risks

• The pending merger with NBT Bancorp introduces uncertainties regarding employee retention, customer relationships, and integration challenges.
• Changes in interest rates could adversely affect the company's business, results of operations, and financial condition.
• The company operates in a highly regulated environment and may be adversely affected by changes in laws and regulations.
• A lack of liquidity could adversely affect the company's financial condition and results of operations and result in regulatory restrictions.
• The company's internal controls may fail or be circumvented.
• The potential for business interruption exists throughout the company's organization.
• The company's information systems may experience an interruption or breach in security.
• The company may incur impairment to its goodwill.
• The company's business may be adversely affected by conditions in the financial markets and economic conditions generally.
• Strong competition within the company's market area may limit the company's growth and profitability.
• Loss of key employees may disrupt relationships with certain customers.
• Damage to the company's reputation could adversely impact our business.
• Changes in the company's accounting policies or in accounting standards could materially affect how the company reports its financial results.

Future Outlook

The merger with NBT Bancorp is expected to close in the second quarter of 2025, enhancing the ability of the combined company to deliver exceptional service, strengthen market position, and generate value to stakeholders throughout its expanded footprint.

Management Comments

• The company expects to continue to focus on building on its competitive advantage in commercial and small business lending by adding personnel in this area.
• Management intends to continue to develop strategies to deepen existing customer relationships with tailored product sets that reward the company's most loyal customers.

Industry Context

The announcement comes amid ongoing consolidation trends in the banking industry, as smaller institutions seek to gain scale and efficiency to compete with larger players and navigate increasing regulatory burdens.

Comparison to Industry Standards

• Comparable regional banks such as NBT Bancorp (NBTB) and Community Bank System (CBU) typically maintain efficiency ratios in the range of 50-60%, suggesting Evans Bancorp's ratio of 76.40% is relatively high.
• The return on average assets (ROAA) for regional banks generally falls between 0.8% and 1.2%, making Evans Bancorp's ROAA of 0.54% lower than the industry benchmark.
• Peer institutions like NBT Bancorp and Community Bank System have ROAEs in the range of 10-12%, indicating that Evans Bancorp's ROAE of 6.65% is below average.
• The net interest margin (NIM) for regional banks is typically between 3.0% and 3.5%, positioning Evans Bancorp's NIM of 2.81% slightly below the industry standard.

Legal Proceedings

• Following the announcement of the proposed merger with NBT, the Company received demand letters and became aware of complaints alleging that the Company and/or its directors caused a materially incomplete and misleading proxy statement relating to the merger to be filed with the SEC.
• The Company believes that the allegations in the Demand Letters and the Complaints are without merit and that the disclosures in the proxy statement/prospectus complied fully with applicable laws.
• In order to avoid the risk that the Demand Letters and Complaints might delay or otherwise adversely affect the merger, and to avoid the cost and distraction of litigation, and without admitting any liability or wrongdoing, the Company and NBT determined to supplement the proxy statement/prospectus by means of additional disclosure provided via Current Report on Form 8-K filed with the SEC on December 13, 2024.

Related Party Transactions

• The aggregate outstanding principal balance of loans to related parties on December 31, 2024 and 2023 was $0.2 million and $0.3 million, respectively.
• Deposits from related parties were $1.2 million and $1.3 million as of December 31, 2024 and 2023, respectively.

Stakeholder Impact

• Shareholders: The merger with NBT Bancorp is expected to provide long-term value.
• Employees: The merger introduces uncertainties regarding future roles with NBT.
• Customers: The merger is expected to enhance the ability of the combined company to deliver exceptional service.
• The company is committed to maintaining a local, community-based philosophy.

Next Steps

• Continue to work towards the completion of the merger with NBT Bancorp, expected to close in the second quarter of 2025.
• Focus on maintaining business as usual during the transition period.
• Continue to increase market share and improve profitability.

Key Dates